ANNUAL AND SUSTAINABILITY REPORT 2020 A leading industrial ecosystem driven by the force of the forest Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other Contents Introduction Sustainability facts 2 This is SCA 136 Value creation 4 The year at a glance 137 Strategic priorities and Group targets 6 CEO's message 141 Governance and materiality 8 Value chain 144 Values 10 A global and local company 147 Profitable growth 12 Forest and climate 148 Fossil-free world 14 Biodiversity 151 Valuable forests 16 Trends 153 Efficient use of resources SCA ANNUAL AND SUSTAINABILITY REPORT 2020 156 Responsibility for people and the community Strategy and operations 159 Social data 18 Strategy 160 Environmental data 24 Forest 162 About the Sustainability Report 30 Wood 36 Pulp Other 40 Containerboard 163 Signatures 44 Renewable energy 164 Auditor’s report 46 Logistics 167 Limited Assurance Report on the 48 Sustainable development Sustainability Report 50 Fossil-free world 168 GRI Index 52 Valuable forests 170 Financial multi-year summary 54 Efficient use of resources 171 Non-financial multi-year summary 56 Responsibility for people and the 172 Definitions and glossary community 173 About the Annual General Meeting 58 The share and shareholders 174 SCA’s performance Board of Directors’ Report The scope of the Sustainability Report in accordance 60 Board of Directors’ Report with the Swedish Annual Accounts Act is described 65 Sustainability reporting in accordance on page 65. The Sustainability Report according to with the Annual Accounts Act GRI is summarized in the GRI content index on pages 66 Risks and risk management 168–169. The Sustainability facts section starts on 71 Corporate governance page 135, and describes SCA’s sustainability work in 78 Presentation of the Board of Directors more detail. and Auditors 80 Presentation of the Executive Management Team Financial statements and notes 82 Contents 84 Consolidated statements and notes 126 Parent Company statements and notes 1 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other THis is SCA Europe’s largest private forest owner SCA is Europe’s largest private forest owner with 2.6 million hectares of forest in Northern Sweden and more than 40,000 hectares in Estonia and Latvia. Based on this unique resource, SCA has developed an industry that generates the maximum possible value in the forest and from the forest. 2.6 million hectares of forest land Pulp mill Sawmills Kraftliner mills SCA’s forest holdings SCA ANNUAL AND SUSTAINABILITY REPORT 2020 Estonia Latvia 2 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other THis is SCA This is SCA The forest is at the core of SCA’s operations. SCA has built an integrated and well-invested industry around this renewable resource, utilizing and maximizing the value of the entire tree. Utilizing this raw material, SCA develops products for customers all around the world. WOOD PULP SCA ANNUAL AND SUSTAINABILITY REPORT 2020 FOREST RENEWABLE CONTAINER- ENERGY BOARD LOGISTICS Forest Wood Pulp The forest is at the core of SCA’s opera- 65% of the revenue for forest owners Any wood unsuitable for use in solid-wood tions. On this base, SCA has built an comes from sawmills. A competitive saw- products is used to make pulp. A pulp mill industrial ecosystem that maximizes mill industry is the economic engine of a also produces secondary flows in the form value creation in and from the forest. forest business. of green chemicals, green electricity, heating and raw materials for biofuels. Containerboard Renewable energy Logistics SCA produces containerboard – paper From the raw materials and by-products Logistics is a core operation for a forestry for transport packaging. In our inte- that are not used for solid-wood products, company. Raw materials must be efficiently grated paper mills we also produce paper or pulp, SCA produces energy, shipped to industrial facilities and products valuable by-products and green energy. green electricity, biofuels and green delivered to customers worldwide. chemicals. SCA’s forests offer favorable sites for wind power production. Forest, Wood, Pulp and Containerboard are segments with full reporting. Renewable energy and Logistics are reported as a part of relevant segments. 3 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other THE year at A glance The year at a glance In 2020, SCA took significant steps towards a business structure, which will create even greater value over time. Net sales 18,410 SEKm EBITDA1) EBITDA margin1) 4,440 24% SEKm Earnings per share1) Proposed dividend per share 3.19 2.00 SEK SEK SCA ANNUAL AND SUSTAINABILITY REPORT 2020 1) Excluding the effect of one-off items related to the discontinuation of publication paper operations. The reported result can be found in the Consolidated financial statements and notes on page 82. Net sales, SCA’s climate benefit SCA’s total shareholder return SCA’s total shareholder return share of Group 2020 2020 since 2017 Total 18,410 9.6 51% 138% SEKm million tonnes total shareholder total shareholder CO2 return return Forest SEK 6,486m, 26%2) In 2020, SCA’s climate benefit SCA’s total shareholder SCA creates value through long- was 9.6 million tonnes of CO , return (TSR) amounted to 51% term, sustainable and profitable Wood SEK 6,296m, 25%2) 2 which corresponds to emissions in 2020. growth. SCA’s total shareholder Pulp SEK 4,431m, 18%2) from Sweden’s passenger cars. return (TSR) from June 2017 Paper SEK 7,916m, 31%2) until 2020 was 138%. 2) Share of net sales before elimination of intra-Group sales 4 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other THE year at A glance Key figures Key events SEKm 2020 2019 In 2020, SCA took important steps to transition the company Net sales 18,410 19,591 towards operations and products with good prospects for EBITDA1) 4,440 5,319 growth and long-term profitability: EBITDA margin, %1) 24.1 27.2 Operating profit1) 2,839 3,703 Discontinuing of publication paper Operating margin, %1) 15.4 18.9 In September, SCA decided to discontinue its publication paper 1) Profit for the period 2,239 2,847 operations. 800 employees were affected by the decision, primarily at the Ortviken paper mill. Earnings per share, SEK1) 3.19 4.05 Proposed dividend per share, SEK 2.00 0.00 Investments in pulp Operating cash flow 2,688 2,922 Strategic capital expenditures 1,414 1,256 SCA is investing SEK 1.45bn in the production of 300,000 tonnes of chemi-thermomechanical pulp (CTMP) at the Ortviken Capital employed 79,834 77,107 industrial site in Sundsvall. Industrial return on capital employed, % 1) 5.4 11.9 Net debt/EBITDA1) 1.7x 1.6x Investments in containerboard SCA ANNUAL AND SUSTAINABILITY REPORT 2020 Average number of employees 4,196 4,253 At the Obbola paper mill near Umeå, the investment to increase Accidents, LTA per million hours worked 5.6 7.4 the production of containerboard, paper for transport packaging, Climate benefit, million tonnes of CO2 9.6 10.5 is ongoing. SCA is investing SEK 7.5bn to increase the produc- Total shareholder return (TSR), % 51 41 tion of kraftliner from 450,000 to 725,000 tonnes per year. 1) Excluding the effect of one-off items related to the discontinuation of publi- cation paper operations in 2020 and the effect of changed accounting method for the valuation of forest assets in 2019. The investment is ongoing at the Obbola paper mill to increase the production of kraftliner. 5 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other CEO’S message We are building SCA for the future The year 2020 was exceptional in many ways. The coronavirus They also contribute to a more sustainable society and ensure pandemic has affected all of us. Health and safety is a top that we can become even better at utilizing our forest raw mate- priority in SCA and we were quick to introduce restrictions and rials from Northern Sweden. Our investments aim to strengthen measures to avoid the spread of the virus at our workplaces, our integrated value chain and create higher long-term value in protecting risk groups and safeguarding our operations. So far and from our forests. This benefits both SCA, as Europe’s largest we have been very successful. Absenteeism at SCA was lower private forest owner, and other forest owners in the region. than normal during the year. Production and customer deliveries have been maintained in the best possible way and we Leading total shareholder return performed three major maintenance stops without increasing infection levels at our workplaces or in local communities. We are building an SCA that is better prepared to face the future, with the aim that an investment in the company will yield favor- Due to the uncertainty surrounding the impact of the coronavirus able returns over time. Since 2017, SCA has generated a total on the global economy and on SCA’s operations, SCA decided shareholder return exceeding 100%. not to pay any dividend for 2019. Our ambition, however, is to pay shareholders a stable and increasing dividend and this ambition Alongside the goal of delivering leading total shareholder return stands firm. to owners, we adopted a number of long-term Group targets during the year that will guide us in our strategic priorities. These Focus on profitable growth targets include a 50% increase in climate benefits from our busi- ness by 2030, climate benefits that are already equivalent to the In 2020, we decided to discontinue the publication paper seg- emissions from Sweden’s passenger cars.